Chris Hedges, who recently interviewed Julian Assange in London, said, “The world has been turned upside down.  The criminals have seized power. It is not, in the end, simply Assange or Bradley Manning they want. It is all who dare to defy the official narrative, to expose the big lie of the global corporate state. The persecution of Assange and Manning is the harbinger of what is to come, the rise of a bitter world where criminals in Brooks Brothers suits and gangsters in beribboned military uniforms—propped up by a vast internal and external security apparatus, a compliant press and a morally bankrupt political elite—monitor and crush those who dissent.” 

And yet in many ways it seems that world is already here.  

Hedges continues, “Assange, Manning and WikiLeaks, by making public in 2010 half a million internal documents from the Pentagon and the State Department, along with the 2007 video of U.S. helicopter pilots nonchalantly gunning down Iraqi civilians, including children, and two Reuters journalists, effectively exposed the empire’s hypocrisy, indiscriminate violence and its use of torture, lies, bribery and crude tactics of intimidation. WikiLeaks shone a spotlight into the inner workings of empire—the most important role of a press—and for this it has become empire’s prey.” 

But the story is not over.  We are in the midst of it.  And it’s a clear there’s a huge movement building that believes another world is possible, which is centered on human values rather than merely money, power and profit.  

Where we went astray was failing to distinguish greed from self-interest. Self interest is human nature– greed is missing the mark.   Our entire system was pumped full of the ideology that there is no difference between greed and self-interest.  We ignored the hypocrisy of exalting greed while considering it a sin according to our oldest religious traditions.  We took the bait and the result: we saw it morally acceptable that some become rich even if it meant that others in poor countries worked in buildings that were unsafe, or that we kept in place dictators that abused their own citizens, or went to war to steal the resources of other nations.  We believed the booty would trickle down to us.  And now it is coming full circle.  What we have accepted to happen to others is happening to Americans.  Our freedoms are diminishing.  Our infrastructure is crumbling.  

Thomas Jefferson said, “If a law is unjust a man is not only right to disobey, he is obligated to do so”.  We need more of this spirit– this moral self-confidence– that understands it is not the government which is ordained by God to decide what is right and what is wrong–what is ordained is the will of the people.  

We do not need to be afraid to give up a world that is set up to not work for us.  The American poet Ralph Waldo Emerson said “a foolish consistency is the hobgoblin of little minds”.  Indeed it is entirely American– as well as entirely human– to boldly seek out and create a new world, a new way of seeing reality and participating. This same impulse is what began the nation that is our home, the nation we love so much, that has given so much.  

Publisher’s Note

Towards the end of his life when Albert Einstein was asked how problems that threatened the very survival of man might be solved he replied a different way of thinking must be used than the thinking that created the problem.

In 1955, Einstein and a small group of scientists and thinkers, all who were at the time or would become recipients of the Nobel Prize, poured all their collective understanding of what the age of the atom meant into a document which they summarized in seven-words: remember your humanity and forget the rest.  

Interestingly, this philosophy can be applied to the fear we might understandably feel given the times we’re living in.  Remember your humanity and forget your fear. Forget your discouragement, forget your feelings of being overwhelmed.  

In the Who Am I feature of this issue, you’ll find these words by a U.S. historian: ”If we see only the worst, it destroys our capacity to do something. If we remember those times and places— and there are so many— where people have behaved magnificently, this gives us the energy to act, and at least the possibility of sending this spinning top of a world in a different direction.”

A Film by Calvin Frederick

To This Day is a project based on a spoken word poem written by Shane Koyczan to further explore the profound and lasting impact that bullying can have on an individual.  Schools and families are in desperate need of proper tools to confront this problem. We can give them a starting point… A message that will have a far reaching and long lasting effect in confronting bullying.

by Colin Rich

Cyprus-style confiscation of depositor funds has been called the “new normal.”  Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk.  Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.  

_{To read this article at Ellen’s blog “Web of Debt”, with click here.} 

Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to “bail in” two bankrupt banks in Cyprus. A “bail in” is a quantum leap beyond a “bail out.” When governments are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to “recapitalize” themselves by confiscating the funds of their creditors, turning debt into equity, or stock; and the “creditors” include the depositors who put their money in the bank thinking it was a secure place to store their savings.

The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here.  “Too big to fail” now trumps all.  Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks.

Why Derivatives Threaten Your Bank Account

The big risk behind all this is the massive $230 trillion derivatives boondoggle managed by US banks. Derivatives are sold as a kind of insurance for managing profits and risk; but as Satyajit Das points out in Extreme Money, they actually increase risk to the system as a whole.

In the US after the Glass-Steagall Act was implemented in 1933, a bank could not gamble with depositor funds for its own account; but in 1999, that barrier was removed. Recent congressional investigations have revealed that in the biggest derivative banks, JPMorgan and Bank of America, massive commingling has occurred between their depository arms and their unregulated and highly vulnerable derivatives arms. Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.

The tab for the 2008 bailout was $700 billion in taxpayer funds, and that was just to start. Another $700 billion disaster could easily wipe out all the money in the FDIC insurance fund, which has only about $25 billion in it.  Both JPMorgan and Bank of America have over $1 trillion in deposits, and total deposits covered by FDIC insurance are about $9 trillion. According to an article on Bloomberg in November 2011, Bank of America’s holding company then had almost $75 trillion in derivatives, and 71% were held in its depository arm; while J.P. Morgan had $79 trillion in derivatives, and 99% were in its depository arm. Those whole mega-sums are not actually at risk, but the cash calculated to be at risk from derivatives from all sources is at least $12 trillion; and JPM is the biggest player, with 30% of the market.

It used to be that the government would backstop the FDIC if it ran out of money. But section 716 of the Dodd Frank Act now precludes the payment of further taxpayer funds to bail out a bank from a bad derivatives gamble. As summarized in a letter from Americans for Financial Reform quoted by Yves Smith:

Section 716 bans taxpayer bailouts of a broad range of derivatives dealing and speculative derivatives activities. Section 716 does not in any way limit the swaps activities which banks or other financial institutions may engage in. It simply prohibits public support for such activities.

There will be no more $700 billion taxpayer bailouts. So where will the banks get the money in the next crisis? It seems the plan has just been revealed in the new bail-in policies.

All Depositors, Secured and Unsecured, May Be at Risk

The bail-in policy for the US and UK is set forth in a document put out jointly by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England (BOE) in December 2012, titled Resolving Globally Active, Systemically Important, Financial Institutions.

In an April 4th article in Financial Sense, John Butler points out that the directive does not explicitly refer to “depositors.”  It refers only to “unsecured creditors.”  But the effective meaning of the term, says Butler, is belied by the fact that the FDIC has been put on the job. The FDIC has direct responsibility only for depositors, not for the bondholders who are wholesale non-depositor sources of bank credit. Butler comments:

Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors of failing institutions are to be arbitrarily, de-facto subordinated to interbank claims, when in fact they are legally senior to those claims!

. . . [C]onsider the brutal, unjust irony of the entire proposal. Remember, its stated purpose is to solve the problem revealed in 2008, namely the existence of insolvent TBTF institutions that were “highly leveraged and complex, with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.” Yet what is being proposed is a framework sacrificing depositors in order to maintain precisely this complex, opaque, leverage-laden financial edifice!

If you believe that what has happened recently in Cyprus is unlikely to happen elsewhere, think again. Economic policy officials in the US, UK and other countries are preparing for it. Remember, someone has to pay. Will it be you? If you are a depositor, the answer is yes.

The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy.

That could mean not just the “unsecured creditors” but the “secured creditors,” including state and local governments. Local governments keep a significant portion of their revenues in Wall Street banks because smaller local banks lack the capacity to handle their complex business. In the US, banks taking deposits of public funds are required to pledge collateral against any funds exceeding the deposit insurance limit of $250,000. But derivative claims are also secured with collateral, and they have super-priority over all other claimants, including other secured creditors. The vault may be empty by the time local government officials get to the teller’s window. Main Street will again have been plundered by Wall Street.

Super-priority Status for Derivatives Increases Rather than Decreases Risk 

Harvard Law Professor Mark Row maintains that the super-priority status of derivatives needs to be repealed. He writes:

. . . [D]erivatives counterparties, . . . unlike most other secured creditors, can seize and immediately liquidate collateral, readily net out gains and losses in their dealings with the bankrupt, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor, all in ways that favor them over the bankrupt’s other creditors.

. . . [W]hen we subsidize derivatives and similar financial activity via bankruptcy benefits unavailable to other creditors, we get more of the activity than we otherwise would. Repeal would induce these burgeoning financial markets to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style financial meltdown, thereby helping to maintain systemic financial stability.

In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He calls the Dodd-Frank policy approach “corporatism” – a partnership between government and corporations. Congress has made no attempt in the legislation to reduce the size of the big banks or to undermine the implicit subsidy provided by the knowledge that they will be bailed out in the event of trouble.

Undergirding this approach is what Skeel calls “the Lehman myth,” which blames the 2008 banking collapse on the decision to allow Lehman Brothers to fail. Skeel counters that the Lehman bankruptcy was actually orderly, and the derivatives were unwound relatively quickly. Rather than preventing the Lehman collapse, the bankruptcy exemption for derivatives may have helped precipitate it.  When the bank appeared to be on shaky ground, the derivatives players all rushed to put in their claims, in a run on the collateral before it ran out. Skeel says the problem could be resolved by eliminating the derivatives exemption from the stay of proceedings that a bankruptcy court applies to other contracts to prevent this sort of run.

Putting the Brakes on the Wall Street End Game

Besides eliminating the super-priority of derivatives, here are some other ways to block the Wall Street asset grab:

(1) Restore the Glass-Steagall Act separating depository banking from investment banking. Support Marcy Kaptur’s H.R. 129.

(2) Break up the giant derivatives banks.  Support Bernie Sanders’ “too big to jail” legislation.

(3) Alternatively, nationalize the TBTFs, as advised in the New York Times by Gar Alperovitz.  If taxpayer bailouts to save the TBTFs are unacceptable, depositor bailouts are even more unacceptable.

(4) Make derivatives illegal, as they were between 1936 and 1982 under the Commodities Exchange Act. They can be unwound by simply netting them out, declaring them null and void.  As noted by Paul Craig Roberts, “the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system.”

(5) Support the Harkin-Whitehouse bill to impose a financial transactions tax on Wall Street trading.  Among other uses, a tax on all trades might supplement the FDIC insurance fund to cover another derivatives disaster.

(5) Establish postal savings banks as government-guaranteed depositories for individual savings. Many countries have public savings banks, which became particularly popular after savings in private banks were wiped out in the banking crisis of the late 1990s.

(6) Establish publicly-owned banks to be depositories of public monies, following the lead of North Dakota, the only state to completely escape the 2008 banking crisis. North Dakota does not keep its revenues in Wall Street banks but deposits them in the state-owned Bank of North Dakota by law.  The bank has a mandate to serve the public, and it does not gamble in derivatives.

A motivated state legislature could set up a publicly-owned bank very quickly. Having its own bank would allow the state to protect both its own revenues and those of its citizens while generating the credit needed to support local business and restore prosperity to Main Street.

For more information on the public bank option, see here. Learn more at the Public Banking Institute conference June 2-4 in San Rafael, California, featuring Matt Taibbi,Birgitta Jonsdottir, Gar Alperovitz and others.  

Reprinted with permission from the author.  

________________

Ellen Brown is an attorney, chairman of the Public Banking Institute, and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com.

Why so little is said today of the McCloy-Zorin Accord and its historic implications provides evidence why nuclear arms– despite their senselessness– are still with us. Some will say so little is said of the Accord because it didn’t achieve its objectives of world peace. They will say trying to achieve peace may be noble, but it is futile. Man will always want to wage war and thus we must be prepared to win war.

Thirteen months after the McCloy-Zorin Accord was signed, for thirteen days in October, the world was brought to the brink of total, permanent annihilation during the Cuban Missile Crisis. The US and USSR possessed 70,000 nuclear warheads and the USSR had tested the largest nuclear weapon ever– a 1,500 Kiloton bomb– 1,000 times the size of the 15 kiloton Hiroshima bomb. If there had been nuclear war, it is almost a certainty human life on earth would have ended.

During the crisis, Kennedy reached out to Kruschev personally to ask him for his help to push back “forces that were pushing us to nuclear war”. Just thirteen months earlier, Kennedy and Kruschev were given the opportunity to learn more about each other, to discover the beliefs and values they shared. The Accord was public acknowledgement by both great nations that they had to start somewhere to eliminate the mindset, material and pursestrings of war. Far from being a failure, the Accord may have produced precisely the hope of its design– peace– when all civilization was at stake.

Today we are pushed to believe that the military and its weaponry is essential for our peace and security. And yet this Accord proves that the two greatest political minds at the time believed something entirely different. What might have happened to the world if both men, over a few days in Sept. of 1961, had not the courage to proclaim their faith in man– rather than their fear of man– in writing for all the world to see?

*Download the remarkable 855-word McCloy-Zorin Accord, which may yet serve as a roadmap to peace, here.

by Chris Theodore